KPMG’s 2024 Emerging Trends in Infrastructure highlights ten trends that will shape the world of infrastructure in the next year.
All at one time, we want to change our energy mix, our climate, our economies, our global trade patterns, our cities, our technology and our social equity. And we plan to do it all against a backdrop of a non-stationary environment, divisive geopolitical rhetoric and deep economic uncertainty. It is a mammoth task.
Humanity’s success or failure will largely rest on the shoulders of our infrastructure. Infrastructure will be central to the energy transition and achieving our climate adaptation goals. It catalyses economic growth and facilitates trade. It underpins urban renewal, lays the foundations for digital transformation and – done well – can help embed social equity.
Delivering on the promise of infrastructure will require greater collaboration, new funding mechanisms, innovative regulatory regimes, new construction techniques, broader skill sets and – more than anything – a high degree of flexibility and creativity. Enabling the world’s transitions, therefore, must start with a transition in the infrastructure sector.
As the world transitions towards a clean energy future, society faces a historic opportunity to ensure that the transition is just, fair, and equitable. In order to meet the UN SDGs, the world should be ensuring economic development and transition to low carbon happens together rather than at the cost of each other. This would require greater focus on capability development, investment in R&D, promoting alternate industries and creating new pillars of economic growth — decarbonization, energy efficiency, smart infrastructure.
This year will be critical to bridge the divide between the developed markets and emerging nations and build trust by ensuring pilot projects are successfully implemented and are the showcase for future projects. Over the coming year, some governments and international organizations are expected to start broadening their definition of ‘just transition’ to beyond just jobs, and, with it, encourage greater collaboration between nations, sectors and citizens.
Multilateral organizations and collaborative alliances — like KPMG’s membership with the WWF and UNDP as part of the Alliance for a Just Energy Transition5 — will be critical to driving this change and achieving a balanced outcome.
With the world in a state of geopolitical and social upheaval, there may be further fracturing of global consensus and an increase in conflict as countries and territories vie over scarce resources, capital and power.
With collaboration, partnership and trust in short supply and geo-political and economic head winds dominating the headlines, the actual and perceived risks to businesses have grown multi-fold. However, there is optimism that the real impacts of the climate emergency and the need for a just transition could inspire some countries and leaders to put the global good ahead of their national interests and come together to forge new alliances.
KPMG believes that all stakeholders should drive consensus on critical developmental and climate agendas. A win-win partnership needs to evolve focused on leveraging technology, innovative and alternate capital as well as broader policy alignment to drive growth.
This year, some infrastructure players and investors are expected to focus on finding ways to measure, manage and mitigate the risk of uncertainty as a hedge against a shift away from global collaboration. KPMG is cautiously optimistic about the triumph of economics and good policies over protectionism and divisive short-term strategies.
As the world approaches the 2030 energy transition milestone (global greenhouse gas emissions need to be cut 43 percent by 2030, compared to 2019 levels, to limit global warming to 1.5°C), governments’ budgets are stretched to make this a reality. Can philanthropic capital fill the gap?
According to KPMG professionals’ analysis, the quantum of philanthropic capital being allocated to infrastructure development is rising, with increased allocations coming from family offices and ultra-high-net-worth individuals seeking to make an impact.
Working in partnership with MDBs and development agencies, these philanthropic investors are using their financial strength and different return expectations to help MDBs crowd more private sector capital into projects using forms of ‘blended finance’.
Over the coming year, many MDBs and other multi laterals are expected to place a greater focus on crowding in philanthropic capital to better drive private capital flows. Should they be successful, a greater volume of projects should start to come to market — particularly in the emerging markets.
The magnetism of city centers is diffusing, and there is a continued shift towards infrastructure decentralization. Mini-grids and solar panels are popping up to take the pressure off large base-load generation facilities. Rather than focusing on building massive trunk infrastructure and expanding existing networks, an opportunity is emerging to instead focus on incentivizing businesses, consumers and users to mesh their own assets into the infrastructure that is already in place.
If done right, there will be greater connectivity between public and private infrastructure, and an infrastructure ‘mesh’ approach allows governments to address some of the resilience issues. However governments will need to ensure that the connectivity infrastructure is available, sustainable and effective enough to allow meshes to form.
This year, expect more governments to start talking about the ‘infrastructure mesh’, and infrastructure players will need to adjust accordingly as the days of building monolithic, industrial-era, single-purpose assets are coming to a close.
Digital transformation has been particularly slow in the infrastructure versus other sectors, however KPMG professionals think that things will change this year based on the increase in demand for digital services from users and consumers amplifying the pressure.
We believe that modern construction methods and technologies like Digital Twins will increasingly become embedded in the sector, and the real benefits of AI will start to show in the next couple of years. Real improvements in terms of construction efficiency, operational improvement, and innovative design will emerge.
We also expect to see significant action and adoption driven by innovation in other sectors such as fintech for payments (toll road), logistics infrastructure (better fleet management), hospitals (effective patient online care and information management) and governance (e-gov). Technology will also be an important enabler to fast tracking sustainable and green infrastructure.
There is an increasing recognition that — in a world of growing uncertainty and disruption — the energy priorities for many governments also include security, access and affordability.
Rather than ending hydrocarbon-based energy generation, many observers are now suggesting a rapid shift towards transition fuels and that any new generating capacity be primarily renewable.
Unfortunately, the path to Net Zero is becoming increasingly complicated. Government incentives are distorting market dynamics. Protectionism in the form of incentives, industrial policy and trade wars are driving competition between nations.
As the focus shifts to operationalizing the renewables and efficiency goals agreed at COP28 and realities of the energy transition start to hit home, we can expect everyone to become more prudent about what must be achieved and the tradeoffs that must be made.
Regulation used to be all about consumer protection. Now, a regulator’s scope has expanded to include risks like cyber security, resilience, decarbonization and innovation. While some regulators are able to move quickly (particularly in Asia), regulators sometimes lack the technical skills, particularly when it comes to emerging issues and technologies. Current regulatory models are also limiting regulators’ ability to deal with the increasingly difficult trade-offs that are being expected to be made.
This year, this challenge will come to a head in many markets and that should lead o a level of regulatory reform, supported by a concerted effort by regulators and governments to develop new models that incentivize more investment and innovation.
At the same time, investors and capital markets will need to recognize that different flavors of regulation can work in different markets.
Demand for robust and effective regulation across a range of fast-moving trends will force the issue up the agenda. Regulators will take the opportunity to adapt and upskill. Also, regulatory activism should be expected to increase.
Infrastructure organizations and biodiversity experts have been talking about ‘ecosystem-based approaches’ for years. This concept has been receiving greater attention recently, and it was also high on the agenda at COP28 where nature-based solutions, biodiversity and climate mitigation and adaptation were notable themes.
These ‘green infrastructure’ solutions can be more effective, sustainable, and affordable than traditional ‘grey infrastructure’. However, to mainstream nature-based solutions, organizations need to be able to properly measure and account for the real value of these assets. The widespread adoption of valuing nature-based assets and solutions would enable companies to better account for these assets on balance sheets, expand their appeal to private investors, and enable governments to make more informed decisions.
Driven by strong policy tailwinds, new disclosure recommendations and growing anxiety about the climate emergency, expect to see increased focus on nature-based solutions over the coming years.
While most governments will not be able to compete with the firepower of the IRA in the US, governments can still improve investment flows into their own green energy and resilience markets.
For one, governments could be focusing on improving deal preparation, project pipelines and regulatory regimes. They could be helping to cut red tape for renewables developments. They could be reinforcing project and contract certainty through clear policymaking. Rather than competing on incentives, they should be competing on governance.
There will also likely be some assistance coming. The Loss and Damage Fund formalized at COP28 – along with several other big transition capital funds announced recently — will help channel capital towards the markets that need it most.
Eventually, policymakers and leaders should realize that equitable green growth — evenly dispersed — is the solution to a wide range of problems. But it requires collaboration not competition.
Technological progress (or, if you prefer, disruption) is happening in shorter cycles with greater impact. Technological flexibility will be increasingly key, such as using open data and design principles to allow new technologies and tools to be bolted on in the future. This also includes contracting for services and outcomes rather than specific technologies or assets.
Governments will also need to be more flexible about ownership. Over the next few years, expect to see governments and infrastructure planners place greater emphasis on creating flexibility in their infrastructure designs and assets.
How KPMG can help
KPMG firms' infrastructure professionals leverage multidisciplinary capabilities available across KPMG’s global network of member firms, tapping into new technologies and working with alliance partners to help deliver outcomes. KPMG infrastructure professionals seek to harmonize local expertise in Singapore, with a global perspective.
KPMG professionals focus on the future with the aim of ensuring clients are maximizing their opportunities and managing their risks. As public and private sector organizations pick up the pace of action on the energy transition, service modernization and economic growth, KPMG professionals can bring the insights, tools and capabilities organizations need to create, quantify and execute their strategies more efficiently and effectively.